It looks like being a good day for investors with a powerful lead from US markets.
Local sentiment will also be helped by commodities, which are continuing to edge higher in the face of ongoing supply problems. The fact that major commodities like iron ore and oil have been able to put some space between current levels and the recent lows is a relief. At this stage, investors don’t have to buy into a commodity bull market. It’s enough to see the temporary removal of the risks flowing from relentlessly lower commodity prices.
Markets have been presented with a lot of economic data over the past 24 hours. On balance this data tended towards a softer outlook for the Australian economy. However, there were enough positives to support an optimistic tone in for stock markets.
Australian building approvals are now trending down from high levels and it’s looking increasingly likely that dwelling construction will become at least a mild headwind for economic growth. Further deterioration in both China’s manufacturing and non-manufacturing PMI’s is also a negative for the Australian economy. On the other hand markets were buoyed by improvement in the Australian and US manufacturing PMI’s. In Australia’s case this reflects the benefit of a weaker currency.
In the US, ongoing improvement in the domestic economy is outweighing the drag of a relatively strong currency and weaker export sector. The US domestic economy remains one of the bright spots of world growth as it continues to drive an improving labour market and inflation outlook.
